Rate hike expectations +30bps sequentially, though still below survey average. Biz growth & confidence stepped up significantly in first survey post-election. 26% of shippers have pulled freight in anticipation of tariffs, and 21% of shippers are considering/have shifted freight to WC due to potential ILA disruption. Survey results are positive for the U.S. rail group in our view, we favor UNP.
Pricing Outlook Improves, Back at 2Q Levels
Rate hike expectations for the next 6-12 months came in at 3.4%, increasing 30bps sequentially, back to levels seen in our 2Q survey, though still below the survey’s long-term average of 3.6%. We are encouraged to see the uptick in pricing expectations, and continued improvement in TL spot market should help rail pricing over the medium-to-long-term. Intermodal pricing should be pressured in the near-term, with hope that a Spring inflection could help the rails with growth, particularly as they lap tough IM comparisons in 2025. We broadly expect U.S. Class I ’25 EPS consensus to move lower as investors adjust yield expectations into the New Year.
21% Of Rail Shippers Are Considering/Have Already Shifted Freight to the West Coast
Given the evolving negotiations at the ILA, where the 1/15 deadline is quickly approaching, we asked shippers if they have or are considering shifting freight to the West Coast given reports that the ILA walked away from negotiations in November. 21% of shippers have shifted or are considering shifting freight to the West Coast (with 73% of that going to LA/LB). Of the shippers that are, 43% are shifting 10%-15% of their freight, and 35% are shifting 5%-10% of their freight. 13% of shippers have/plan to shift more than 15% of their freight. The freight shift is evident in Port data and the magnitude of this shift is likely more than we previously expected; this may be a tailwind to UNP earnings in 4Q and could add to 1Q as well.
65% of shippers expect to move freight back to its original entry point within 1-3 months following a labor resolution, and 22% expect to move back their freight within a month, highlighting the relatively short timeframe within which freight should settle back into its previous lane. We were encouraged to hear recent reports suggest that the ILA union and carriers are set to resume negotiations on 1/7. Federal officials are not involved in the discussions presently and negotiations are occurring close to a Presidential transition in the U.S., creating significant uncertainty regarding the outcome.
Business Growth Highest Since 2021, Economic Confidence Inflects Sharply Higher in First Survey Post-Election
Business growth expectations over the next 12 months also increased 80bps sequentially to 3.0% in 4Q, now above the survey’s average of 2.4%. Business growth expectations in 4Q was the highest reading since 4Q21. 69% of shippers are more confidence in the economy than they were three months ago, up from 30% last quarter, in our first survey post-election. Positive economic momentum appears to be outweighing any negative implications that tariffs may bring to NA rail shippers. Both of these moves mimic the responses of our 4Q Carrier Survey (insert link here).
26% Of Shippers Pulled Forward Shipments in Anticipation of Tariffs
We asked shippers whether they pulled forward shipments on tariff fears; 26% of participants responded Yes. 41% of the shippers that answered Yes, pulled forward 0%-5% of shipments. 30% pulled forward 5%-10% of shipments, and 22% pulled forward 10-15% of shipments. There has been a large amount of speculation through earnings on quantifying peak season, ILA negotiations, and tariff fears as Port volumes show robust growth; our survey suggests that ~ a quarter of rail shippers are taking action on their order books ahead of potential tariffs in 2025, a material percentage that is likely clouding traditional peak season.
Thoughts Into Rail Earnings
Survey results are a positive for the U.S. rail group as pricing expectations accelerate, business growth expectations trend above the survey average and record the highest level since ’21, and economic outlook inflects sharply higher in the post-election survey. We broadly see full year ’25 EPS consensus coming down for the Class I’s ahead of the 4Q print, as investors adjust yield expectations and tough comparisons (particularly IM). That said, survey results suggest pricing and business activity moving in the right direction, and near-term catalysts may offer upside to names such as Buy rated UNP.
Survey Makeup
Below we highlight the makeup of our survey by participants’ industries. Our survey is comprehensive and covers a broad range of industrial and consumer industries, among others. “Manufacturing,” “Transportation,” and “Logistics” comprised the largest percentages of participants. Shippers completing this survey had approximately $19 billion of transportation spend.
SURVEY QUESTIONS
How Much of a Blended Base Price Increase Do You Anticipate Over the Next 6-12 Months?
Shippers anticipate rail prices to increase by 3.4% over the next 6-12 months, up 30bps compared to last quarter but still slightly below the 5Y survey average of 3.6%. Uptick is encouraging but pricing expectations in the LSD range track with the elongated trough in TL rates and recovery expectations ~2Q25 per our Carrier Survey. An intermodal panelist on our latest happy hour pointed to a challenged intermodal pricing environment in Wint
What Is the Current Price Differential You Are Seeing Between Specific Rail and Truckload Freight Moves (Bulk/Carload)?
27% of respondents indicated that truckload is a cheaper option than rail, up 4 points compared to last quarter once again rising materially above the survey average response of ~20%. Participants answering that rail is 0%-5% and 5%-10% cheaper were roughly in line with last quarter while the proportion answering that rail is 10%-15% cheaper declined significantly by 5 points. Results are in line with the slight uptick in anticipated rail pricing.er with modest improvement likely in the Spring of 2025.
What Is the Current Price Differential You Are Seeing Between Specific Rail and Truckload Freight Moves (Intermodal)?
29% of intermodal shippers answered that truck is cheaper than rail compared to 24% a quarter ago, a 5-point increase. The proportion of shippers who answered that rail is 0%-5% cheaper was up 3 points sequentially while 5%-10% cheaper was down 4 percentage points.
Since The ILA Port Union Walked Away from Negotiations, Have You Shifted/Are You Considering Shifting Freight to The West Coast from The East Coast?
21% of shippers have considered/shifted freight away from the East Coast to the West Coast since the ILA walked away from negotiations. For those shifting freight, we asked shippers to size the shift and 43% of participants answered in the 10%-15% range.
Which West Coast Entry Point Did You Move Freight To?
We asked shippers that shifted freight where they moved to from the East Coast. The vast majority of freight was naturally moved to LA/LB with Seattle-Tacoma and Canadian ports being an alternative for a minority of shippers. Figures do not add to 100% as some shippers shifted to multiple ports.
If The Labor Negotiations Are Resolved On/Before The 1/15 Deadline, How Quickly Do You Plan To Move Freight Back To Its Original East/Gulf Coast Entry Point?
We asked shippers that moved freight, how quickly they would move back to original entry points upon resolution of the labor dispute. A majority (65%) of shippers see normalization occurring within 1-3 months of resolution. A little under a quarter of participants will move freight back within a month. Results indicate a vast majority of freight could move back to the EC/GC within a relatively short timeframe.
Did You Pull Forward Shipments in Anticipation Of New Import Tariffs Likely Being Implemented In 2025?
We asked shippers whether they pulled forward shipments on tariff fears. Roughly a quarter of participants answered in the affirmative. We also asked shippers to size the magnitude of the pull forward. Of the shippers that made this adjustment, 41% of participants, pulled forward 0%-5% of shipments, 30% pulled forward 5%-10% and 22% pulled forward 10%-15%.
Over The Past Quarter, Have You Shifted More Off the Highway to the Railroads?
16% of bulk shippers and 18% of intermodal shippers now report having shifted volumes onto the rails, down 12 percentage points and 5 percentage points respectively. We note that an eventual recovery in TL rates should support greater conversions to rail going forward.
If So, Why (Bulk/Carload and Intermodal)?
“Concerns about tight TL capacity,” held ~flat and remains at a low level. Participants that cited higher truck prices increased by a percentage point to 27%. 32% of shippers answered, “improved rail service,” down 3 points from last quarter.
Are You Concerned About Rail Capacity?
38% of shippers answered that they are concerned about rail capacity, 3 percentage points more compared to last quarter. Results are still significantly lower than post COVID levels. Compared to a quarter ago, 7 percentage point more shippers cited “Equipment,” 3 percentage points less for “Track,” and 8 percentage points less answered “Manpower”.
Has Rail Service Impacted Your Modal Choices?
45% of survey respondents report that the quality of rail service has impacted their modal choices up 3 percentage points compared to last quarter. This is still materially below COVID congestion levels.
How Would You Rate the Railroads on Service Measures, Using a Y/Y Comparison?
The average “positive” (excellent or good rating) rating of Class I (including KCS, KCSM, and Ferromex) rail service rose to 50% in 4Q, increasing 2 percentage point sequentially. Results for the U.S. Class I’s were roughly in line with the previous quarter but down slightly y/y. This quarter, we again segment KSU’s operations by geography, separating Kansas City Southern (KCS, or KSU’s U.S. railroad) and Kansas City Southern de México (KCSM, or KSU’s Mexico railroad), and including service measure results for Mexican railroad Ferromex.
How Would You Rate the Railroads On Digital Ease Of Use And Freight Visibility?
We asked shippers to rate the Class I’s by digital ease of use and freight visibility as technology becomes an increasingly central part of rails’ efficiency strategies. The average “positive” (excellent or good rating) rating of Class I’s digital ease of use rating was 57% in 4Q, up 5 percentage points compared to last quarter.
If Rail Service Improves, How Much More Freight Would You Push Toward the Railroads (Bulk/Carload)?
In the bulk/carload category, 62% of survey respondents indicated they would push 0- 5% more freight toward the rails, up materially vs last quarter talking share from those answering they would move 5%-10% which was down 11 points.
If Rail Service Improves, How Much More Freight Would You Push Toward the Railroads (Intermodal)?
On the intermodal side, 63% of shippers answered 0%-5% more freight would be shifted to rails, 5 points more compared to last quarter. Participants responding that 5-10% of their freight would be shifted was down 7 points. At 10-15% level, responses ticked down by 2 points. Finally, those answering they would move more than 15% of freight increased by 5 percentage points sequentially.
How Much Longer Does Rail Service Need to Be of Reasonably High Quality For You To Shift Volume Meaningfully Off The Highway?
We again asked shippers how long service quality needs to persist at improved levels for OTR conversions to materialize. The percentage of shippers answering with 2 quarters increased 8 points to 51%.
If You Ship Cross-Border (Mexico – U.S./Canada), Which Cross Border Intermodal Service Do You Use?
We again asked shippers about their cross-border intermodal choices. 38% of participants responded that they engage in cross-border shipping, flat from last quarter. Of those cross-border shippers, we asked participants which cross-border intermodal service they use. 63% responded that they do not use an intermodal service. In 4Q, CPKC led the group.
What Percentage of Your Cross-Border Intermodal Volume Do You Anticipate You Will Shift Off The Road To New Cross-Border Intermodal Offerings Over The Next Year?
We also asked shippers what proportion of their cross-border freight volume they anticipate shifting over to intermodal services in the coming year. On average, shippers plan to move 13% of volumes to intermodal, down 7 percentage points sequentially with responses ranging from 0% to 100%.
Have ESG Targets Become a Part Of Your Decision-Making?
Responses that ESG targets were a factor decreased to 26% compared to 30% last quarter. We continue to expect ESG factors to become increasingly incorporated over the long term. Discussions with rail company management and shippers suggest that large shippers are already incorporating ESG elements into their transportation relationships and smaller shippers are expected to follow suit eventually.
Given Current Economic Conditions, How Much Do You Anticipate That Your Business Will Grow Over The Next 12 Months?
Business growth expectations over the next 12 months spiked 80bps to 3.0%, moving above the post-2016 average of 2.4%, a similar improvement in growth expectations seen in our Carrier survey.
Over The Next 12 Months, How Will Your Employee Count Change?
The percentage of shippers expecting their employee counts to increase over the next 12 months was up 3 points at 42%. The percentage of shippers expecting to decrease headcount was down 5 points while those expecting it to be unchanged was up 2 points in the quarter.
Is Your Company Having Difficulty Hiring Employees?
We asked participants if their companies are having difficulty hiring employees. Results were up 2 points compared to last quarter with 42% of participants stating that they are having trouble hiring employees, and 49% not having trouble hiring employees.
Are You More Confident in The Direction Of The Economy Today Than You Were Three Months Ago?
Economic confidence surged with 69% of participants stating that they are more confident in our first survey following the U.S. election. Results are similar to those observed in our Carrier survey.
On A Scale Of 1 To 5, 5 Being The Most Positive, How Have Business Levels Trended Over The Last 3 Months?
Business levels over the past few months were positive (“good,” “very good,” or “excellent”) for 59% of respondents, up 16 points compared to last quarter.
